The cautious managed fund sector has enjoyed three months of improving performance after a difficult...
The cautious managed fund sector has enjoyed three months of improving performance after a difficult year, and managers are using the technology correction as a buying opportunity.
Since the recent correction value stocks have enjoyed a resurgence. This has allowed cautious managed funds to reap gains on value positions bolstered during the height of the technology, media and telecoms story.
According to Standard & Poor's, over the three months up to 7 June the average cautious managed fund returned 1.2% on a bid to bid basis, compared to negative one year performance of 2.0% on an offer to bid basis.
Fund managers see a more realistic, less indiscriminate market forming and believe that it is traditional stocks that are set to gain from the new economy.
Jenny Keeling, fund manager on Axa Sun Life's UK equities team, says that the Axa Sun Life Distribution Fund benefited from the tech reversal and is seeking new economy exposure through old economy stocks.
She says: "The first part of the year when the market was still driven by technology was difficult for our Distribution fund. Because of the yield requirements on the fund it has a very much lower weighting in technology stocks than represented in the FTSE All Share. Since then, performance has turned around quite sharply."
She says the last quarter of 1999 and the first quarter of 2000 presented very good buying opportunities for stocks which met the fund's income requirement.
She says: "We think that the period of extreme polarity has ended, and there is now a little more reality coming into the market. The view we are taking is to focus on those stocks which will benefit from the revival of technology such as Reuters and some of the insurance companies that are expanding their online business."
Its top holdings, which reflect the policy of seeking out stocks set to benefit from the e-revolution include stocks such as Legal & General, BT, Lloyds, Astra Zeneca, BP Amoco and Tesco.
Chris Burvill, who manages the £14.7m Investec Cautious Managed Fund, is running a high cash position of 9%, because he believes that while the old economy will deliver good performance this year, value stocks may face tough times in the immediate future.
As with the Axa SunLife fund, Burvill used the technology story to build on positions and was fairly fully invested in the early part of the year. The current high cash position reflects profits taken on the value bounce, particularly in oils, financials, and the consumer sector.
He says: "In the short term I am cautious, but in the long term I am bullish. Higher yielding shares are ridiculously cheap and all I am trying to do is hold back over the short term because having rallied, in some cases by as much as 30% to 40%, I think there will be a slight pause with prices drifting down."
He is also concerned about the possibility of further interest rate rises in the US, and slowing US and global growth.
He says: "People have played the technology argument and it seems that the most optimistic of assumptions have run out of steam.
"They have played the switch back into old economy stocks, but I believe they will run and will be a good area for the rest of the year."
He is scornful of the technology story, saying that it is the older companies with strong brands, products and customer bases that will be those who benefit most from the new technology.
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